Now, I’m always told that RE investing works anywhere. And to some degree, that’s true. However, what is not mentioned that not ALL types of investing work anywhere.
For example, someone who wants to invest ‘SUBJECT TO’, by taking over payments from owners who have zero to little equity in their homes, must realize that they will have a much harder time finding these ‘upside down’ owners in older neighborhoods, where most residents have their loan balances paid off or just about paid off.
Rehabbing would probably be a better strategy to pursue in OLDER, more established neighborhoods.
However, here is another problem. In the area where I'm from (Chicagoland), the market is pretty much saturated with investors or investor wannabe's (like myself). This influx of cash and buyers is good, on one hand, as you are almost guaranteed to sell a house at or above the Fair Market Value (FMV). However, the negative side is that even a house that needs 10K in work/updates will sell for the FMV or slightly below as well. So the investor gets outbid by newbies and potential homeowners.
Now, I’m into rehabbing myself. I’d like to be able to turn an ugly house into a beautiful home and make a nice paycheck doing that. So what should I do?
Should I just go after foreclosures, expired listings and other motivated situations in my hot market or should I look into cooler markets elsewhere (within 90 miles of my home, where rehabs are still Listed on the MLS close to 70% LTV, or better)
Now, another issue in hot markets is that the rents don’t match the mortgage payments, unless you go with the 1-5 year balloon, interest only mortgage, and even then, your cashflow is minimal (100-200/mo), so if a tenant trashes your home, you’ll be hurting pretty bad.
On the other hand, the cooler markets have rents that exceed the mortgage payment (which baffles me, as I think why would anyone rent if they can own for less?). For example, 60K home on the MLS rents for $700/mo. So, if I find a home that is cheaper, my cashflow will be better in case I can't sell it quickly AND my loan will be fixed for 30 years.
So… question for your pros. If you live in a hot seller’s market, like mine, do you invest elsewhere or do you look for deals in your own back yard?
Sorry for writing a book and I appreciate any feedback you provide.
Should I just go after foreclosures, expired listings and other motivated situations in my hot market
Even in good markets I can usually find people in trouble. Heck, I'd bet 90% of the US population is within 3 missed paydays of losing their house and car, everyone is living paycheck to paycheck. Some of them doing this are soon to be "former investors".
I've found good deals from disillusioned landlords and partway finished rehabbers who sorely underestimated their costs.
should I look into cooler markets elsewhere (within 90 miles of my home, where rehabs are still Listed on the MLS close to 70% LTV, or better)
This sounds a bit better than right at home, insofar as availability of deals, BUT, how long will it take you to drive the 90 miles to do the work? I've found the farther away something is the more excuses I can find to not make the trip.
Also, IMO 70% of FMV for a rehab is GROSSLY OVERPRICED. Acquisition cost, plus repair/rehab cost of 70% is at the TOP END.
Keep looking, keep your cash dry so you can pounce on the deals that do come up. Remember, 99% of those wannabes will NEVER pull the trigger on a deal and will be gone in a year or so.
BTW, when I lived in a major metro area (Houston) I wouldn't buy anything more than 10 miles from my house. I turned down some slam dunk deals with that rule. But if someone stood me up on a showing it didn't ruin my day! I live in a small town now (about 5,000) with a few smaller places within 10 miles and a similarly sized town about 20 miles away. That's as far as I'll go. I'm within an hour of Austin which is a hot market, but overrun with wannabes and out of staters, and about an hour from San Antonio. I can find sufficient good deals, and occasionly a great deal here.
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